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Innovation and Virtual Environments: Towards
Virtual Knowledge Brokers
Gianmario Verona, Emanuela Prandelli and Mohanbir Sawhney
Abstract
Gianmario Verona
Bocconi
University, Milan,
Italy
Emanuela
Prandelli
Bocconi
University, Milan,
Italy
Mohanbir
Sawhney
Kellogg School of
Management,
Northwestern
University,
Evanston, USA
Organization
Studies
27(6): 765–788
ISSN 0170–8406
Copyright © 2006
SAGE Publications
(London,
Thousand Oaks,
CA & New Delhi)
www.egosnet.org/os
We examine the implications of virtual customer environments for supporting the
innovation process. By building on the literature of knowledge brokers, we introduce
the concept of virtual knowledge brokers — actors who leverage the internet to
support third parties’ innovation activities. These actors enable firms to extend their
reach in engaging with customers and they also allow firms to have a richer dialogue
with customers because of their perceived neutrality. Consequently, virtual knowledge
brokers help firms to complement the knowledge they can acquire through traditional
physical and virtual channels for customer interaction. We highlight the capabilities
and contributions of virtual knowledge brokers, and we discuss the implications of
these entities for theory and practice in the management of innovation.
Keywords: innovation, virtual environments, knowledge brokers, customers,
networks
In recent years, researchers in organization and management theory have
become interested in the capacity of firms to manage innovation on a continuous basis (e.g. Brown and Eisenhardt 1997; Christensen 1997; Tushman and
O’Really 1997). To sustain the pace of innovation demanded by rapidly
changing technology and customer needs, firms need to improve their ability
to produce, integrate, and recombine knowledge (Teece et al. 1997). This
knowledge is becoming more diverse as industries converge and markets
collide (Prahalad and Ramaswamy 2004). Firms need to cast their nets far
and wide to garner the knowledge they need to create new products and
processes (Powell et al. 1996).
Information and communications technologies, including the internet, have
greatly enhanced the ability of firms to expand their repertoire of knowledge
by engaging external actors in the innovation process (Arora et al. 2002).
While this is true for all the actors in the firm’s environment, perhaps the most
important is the interaction between firms and their customers. Enhanced
connectivity allows customers to become active contributors and collaborators in value creation (Iansiti and MacCormack 1997; Prahalad and
Ramaswamy 2004). The internet enables the creation of virtual customer
environments — platforms for collaboration that allow firms to tap into
individual and social customer knowledge through an ongoing dialogue
DOI: 10.1177/0170840606061073
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Organization Studies 27(6)
(Nambisan 2002; Sawhney and Prandelli 2000). Customer toolkits that enable
leading-edge customers to provide input into innovation can greatly reduce
the cost and improve the speed and quality of the innovation process (Von
Hippel 2001; Dahan and Hauser 2002).
While firms can benefit greatly from engaging directly with customers in
virtual environments, our premise in this article is that direct engagement is not
enough. To fully leverage the power of virtual environments, we propose that
firms need to combine direct channels of customer connection with mediated
channels that include virtual knowledge brokers (VKBs). These actors manage
their own virtual environments and provide these environments as a service
to firms. In so doing, they extend a firm’s scope of interaction to include
knowledge that comes from diverse and previously disconnected sources.
VKBs are the virtual manifestation of knowledge brokers (KBs) — third
parties who connect, recombine, and transfer knowledge to companies in order
to facilitate innovation (Hargadon and Sutton 2000). In the physical world,
KBs work close to their business customers to provide specific innovation
solutions, and have traditionally taken the form of innovation and design
consulting firms (Sutton 2002; Hargadon 2003). However, in the virtual world,
VKBs take the form of information intermediaries who leverage the unique
capabilities of the internet to absorb valuable market knowledge for innovation.
VKBs’ activities can be more diverse, their reach is broader, and their influence
on the innovation process is qualitatively different. Figure 1 provides a
comparison of operators who use different mechanisms to facilitate innovation.
Figure 1. Examples of Operators that Exploit Different Mechanisms in the Management of Innovation
Firm
Broker
Source
Traditional Firms
Knowledge Brokers
Physical
•
Environment
Many consumer product firms that
organize the process of innovation
(e.g. Disney, Sony, P&G)
• Many industrial product firms that
organize the process of innovation
(e.g., GE, ABB)
•
•
•
•
•
Virtual Customer Environments
Virtual
•
•
•
•
•
Sun Microsystems
Cisco
Diesel
Ducati
Microsoft
IDEO
Design Continuum
McKinsey & Co
Hewlett Packard
Edison’s Menlo Park Lab
Virtual Knowledge Brokers
•
•
•
•
•
C|Net
Homestore
Edmunds
iVillage
Innocentive
Verona et al.: Innovation and Virtual Environments
767
In physical environments, firms can autonomously innovate or they can
involve KBs, like the design firms IDEO and Design Continuum, to support
their innovation activity and obtain specific design solutions. In virtual
settings, firms can directly leverage the internet to engage customers in
the innovation process. But they can go beyond direct channels by using
VKBs to extend their reach and increase the speed and improve the quality
of their innovation activities. Internet firms like CNET.com, Homestore.com,
Edmunds.com have evolved into VKBs in the technology, home ownership,
and automobile markets, respectively, by gathering customer feedback on
industry-specific products and developing communities of interests around
these industries. VKBs collect dispersed individual and social customer
knowledge, and distribute it to firms after organizing and elaborating it to
support innovation. They augment the firm’s ‘network resources’ (Gulati
1999) by enabling the process of distributed innovation (Arora et al. 2002),
where the firm becomes the focal node of an inter-organizational network of
knowledge (Powell et al. 1996; Ahuja 2000).
The purpose of this article is to propose the concept of virtual knowledge
brokerage and the important role that third-party VKBs can play in enhancing
a firm’s innovation process. Understanding the role and the functioning of
VKBs has important implications for theory as well as for practice. From the
theoretical standpoint, VKBs extend the concept of KBs to virtual environments, highlighting the ways in which virtual environments enhance the reach
and richness of the knowledge brokering function. From the managerial
perspective, VKBs are a way to bridge knowledge gaps created by the inability
of firms to reach the right customers at the right time in the right context to
benefit from market knowledge.
The article is organized as follows. We begin with a review of the research
on KBs and highlight the capabilities of knowledge brokers. We then show
how these capabilities are substantially amplified in virtual environments.
Next, we develop a theoretical framework of VKBs where we highlight their
contributions to the innovation process and the main differences between
VKBs and more traditional sources of customer knowledge. We conclude by
discussing the implications of our conceptual framework for theory and
practice, and by highlighting directions for future research.
Research on Knowledge Brokers
The concept of technology brokering was first introduced by Hargardon and
Sutton (1997) to show how the innovation outcome of a company could
benefit from its inter-industrial and inter-organizational technology exposure.
The concept of technology brokering is rooted in the theory of structural
holes, which explains how certain firms can play a key role in bridging
knowledge gaps in a market (Burt 1992). The idea of bridging structural holes
has found fruitful applications in several socio-economic fields, particularly
in technological innovation (Hargadon and Sutton 1997). Technology brokering across industries is a four-step process that involves (1) access — i.e.
filling the gap in the flow of technology between industries and between firms
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Organization Studies 27(6)
by occupying a central node, or ‘bridging’ position, between subgroups of a
more extended network that do not interact with each other; (2) acquisition
— absorption of knowledge about a specific technology through intensive
inter-industrial exposure and in-depth experimentation activity; (3) storage
— memorizing the solutions by way of people, artifacts, and concepts in the
organization; and (4) retrieval — applying the stored and old technological
solutions to create new solutions by using analogical thinking and brainstorming procedures.
In their study of the design consulting firm IDEO, the authors find that the
company patches technology produced in different industries by brokering
models and ideas from one context to another, using the four-step process
described above. This idea of technology brokerage is consistent with the
historical role played by Thomas Edison’s Menlo Park Laboratory, where,
for instance, knowledge gained in electromagnetic power from the telegraph
industry was effectively transferred to the lighting, telephone, phonograph,
railway, and mining industries (Hargadon 1998). Likewise, it provides an
explanation for the impressive productivity results that Ford Motor Company
gained in automobile manufacturing through the introduction of the electric
motor, by capitalizing on ideas of the machine tool industry, granaries,
breweries, and the meatpacking industry (Hargadon 2003: Ch. 2). In summary,
technology brokers are actors who improve innovation by transporting ideas
between unconnected industries, blending old technologies with new ones in
order to stimulate innovation, and transferring these new combined technologies to new contexts.
Recently, technology brokers have been associated with the more general
concept of knowledge brokering (Hargadon and Sutton 2000; Sutton 2002;
Hargadon 2003).1 Moving beyond design consulting firms (such as IDEO)
and invention labs (such as Edison’s Menlo Park Laboratory) to strategic
consulting firms (such as McKinsey & Co.) and knowledge management
practices of highly innovative multinational organizations (such as Boeing
and Hewlett Packard), the concept of technology brokering can be extended
to other forms of organizational knowledge. In this broader view, KBs may
be defined as ‘intermediaries … between otherwise disconnected pools
of ideas. They use their in-between vantage points to spot old ideas that can
be used in new places, new ways and new combinations’ (Hargadon and
Sutton 2000: 158). Further empirical evidence highlights the presence of a
similar ‘brokering cycle’ consisting of network access, knowledge absorption,
knowledge integration, and implementation, whose objective is not simply
technological knowledge but any kind of organizational knowledge that can
support a specific invention (Sutton 2002; Hargadon 2003).
Knowledge brokerage enhances the dynamic capabilities of the firm
(Eisenhardt and Martin 2000) in markets characterized by rapid and abrupt
technological change. In these dynamic market contexts, knowledge creation,
integration, and reconfiguration become vital to sustaining competitive advantage (Teece et al. 1997). Knowledge brokers support innovation by connecting, recombining, and transferring to new contexts otherwise disconnected
pools of ideas.
Verona et al.: Innovation and Virtual Environments
769
Knowledge Brokerage in Virtual Environments
The explosion of connectivity by means of the internet, together with the
development of new information standards (Shapiro and Varian 1998) permits
an open and almost cost-free exchange of information between actors in any
market (Evans and Wurster 1999). Digital networks allow a large number of
players to systematically share ideas and create distributed learning systems
(Sproull and Kiesler 1991). As a consequence, a number of intermediaries
have emerged to facilitate knowledge exchange in digital environments,
mediating between customers who make buying decisions and the companies
that want to reach these customers (Bakos 1997). These ‘middlemen’ operate
as information intermediaries or ‘infomediaries’ (Hagel and Rayport 1997)
by making it easier for customers to obtain information about sellers and by
allowing sellers to reach customers.
By going beyond their traditional role as intermediaries who work on behalf
of customers to facilitate transactions (Hagel and Singer 1999; Kaplan and
Sawhney 2000), some infomediaries have evolved into VKBs by working on
behalf of firms to facilitate customer knowledge import to support innovation.
For instance, Edmunds (www.edmunds.com) is an infomediary that empowers
automotive customers to make better buying and ownership decisions by
providing detailed and unbiased information for automobile buyers. Edmunds
focuses on editorial content and community management, and generates
revenues by referring qualified leads to marketing partners that include
automobile dealers, manufacturers, and finance and insurance companies.
More recently, Edmunds has begun to play the role of a VKB. The company realized that its community named Town Hall could be a valuable
resource for its automobile OEM partners. It now allows automobile OEM
executives to host discussions as guests and answer customers’ questions.
OEM product managers can even create their own sub-communities about,
for example, a new model that they may be bringing to market in the future.
Some automotive companies have gone further, creating private communities
for which they pay Edmunds a monthly fee to host and run their part of the
site. For instance, Edmunds’ partners like Subaru have begun to make use
of its million-strong customer community to obtain specific feedback from
a diverse group of customers regarding their products. This feedback is
analyzed and repackaged by Edmunds to suit Subaru’s specific knowledge
needs and to support its new product development activities. By partnering
with Edmunds, Subaru can maximize the quality of customer contributions
and filter out less insightful conversations. When Edmunds hosts live chat
events, it is able to engage more than 200 participants per session, who act
as a clinical group, providing comments and advice about products and
product experiences to product managers, who can intervene appropriately
to stimulate their knowledge sharing. Beyond operating ad hoc virtual communities, Edmunds has also created an offering called Edmunds Information
Solutions for automotive manufacturers, which provides competitive intelligence, consideration sets, customer preferences and buying behavior to
support the new product development and marketing processes for automotive
770
Brokering cycle
Specific dimensions
Impact of virtual environments
Contributing literature
Network access
Direct ties
•
•
•
Afuha (2003); Craincross (1997); Gladwell (2000);
Evans and Wurster (1999); Shapiro and Varian (1998);
Downes and Mui (1998); McAfee and Oliveau (2002)
Indirect ties
Structural autonomy
Tie modality
Knowledge
absorption,
integration, and
implementation
Knowledge absorption
•
•
•
•
•
•
•
•
•
Knowledge integration
•
•
•
Knowledge implementation •
•
•
Low-cost and easy-to-use platform
Elimination of geographic barriers
Blurring up of the trade-off between
richness and reach
Network externalities
Open standard allowing entry to partners’
partner competences
Syndication
Convergence among unrelated skills
Opportunities for sharing innovative labor
Real-time, two-way, low-cost communication
Low costs of conversion of the platform
of interaction
Tools enhancing knowledge acquisition from
individuals — online tracking; surveys and pools;
user-friendly toolkits for product configuration
Communities of creation
Afuha (2003); Ruefli et al. (2001)
Linder et al. (2003); Prahalad and Ramaswamy (2004);
Werbach (2000); Afuha (2003); Porter (2001)
Prahalad and Krishnan (2002); Hagel and Singer
(1999); Hoffman and Novak (1996)
Dahan and Hauser (2002); Nambisan (2002); Thomke
and von Hippel (2002); Urban and Hauser (2002);
Burke et al. (2001); MacCormack et al. (2001); von
Hippel (2001); Kozinets (1999); Bhattacharya
et al. (1998)
Formal mechanisms increasing information
Prahalad and Ramaswamy (2004); Sawhney and
distribution
Prandelli (2000); Kozinets (1999); Wayland and Cole
Informal social integration through extended
(1997); Hoffman and Novak (1996); Rheingold (1993);
connectivity
Brown and Duguid (1991); Lave and Wenger (1991);
Communities of practice facilitating assimilation Sproull and Kiesler (1991)
through distributed learning
Information digitalization increasing the inputs
Afuha (2003); Sawhney et al. (2003); Ruefli et al.
for knowledge transformation
(2001); Fahey and Prusak (1998)
Electronic archives facilitating knowledge
retrieval and recombination
Availability of the same knowledge to more
potential users
Organization Studies 27(6)
Table 1. The Impact of Virtual Environments on a Knowledge Broker’s Distinctive Competences
Verona et al.: Innovation and Virtual Environments
771
OEMs. In this way Edmunds helps OEMs to connect with customers who are
more committed, active and informed than those who visit websites run by
individual manufacturers.
In a similar way, but in a different industry, the community operator Liquid
Generation (www.liquidgeneration.com) provides information useful to firms
interested in better understanding teenagers who belong to the so-called
Generation Y, a segment whose economic importance is growing. When the
company was funded in August 2000, the original plan was to start out as a
portal and generate revenue through advertising and the selling of merchandise. However, soon the firm realized that the real opportunity lay in addressing
a problem faced by every firm that seeks to market to teenagers: understanding the fickle needs of this population, and motivating hard-to-reach
teenagers to provide information about their needs and preferences. When
the website started in April 2001, it was conceived as an entertainment site,
bringing in young people who understood the culture and could proficiently
interact with the target that the company wanted to involve in deep conversations. This content is analyzed and reinterpreted by Liquid Generation to
answer its clients’ needs of specific feedback and ideas related to individual
products. For instance, one of the firm’s clients — a company that makes
stuffed shirts — wanted to survey the age group about a new product and its
most appropriate attributes. Liquid Generation incorporated the survey
questions into a funny online presentation, leveraged its relationships with
3.5 million unique visitors a month, and in about 36 hours was able to provide
relevant customer input to its client.
VKBs such as Edmunds and Liquid Generation are the virtual manifestation
of KBs. The fact that they operate in a virtual environment makes their reach
broader and the scope of intervention in the innovation process more extensive.
Based on the four-step KB model we presented in the previous section, we
now discuss how virtual environments substantially amplify the competences
of a traditional KB. We summarize our observations in Table 1.
VKBs and Network Access
The use of virtual environments enhances all the potential drivers of network
access for KBs — direct and indirect ties, structural autonomy, and tie
modality. Virtual environments enhance the ability of knowledge brokers to
generate direct ties in at least three ways. First, the internet is a far more costeffective and ubiquitous network relative to previous proprietary networks
— such as EDI (Afuha 2003). The internet is a global medium with
unprecedented reach, so VKB can broker knowledge across participants in
virtual environments without regard to constraints of time and geography
(Craincross 1997). Second, virtual environments break the age-old trade-off
between richness and reach (Evans and Wurster 1999). In the physical world,
communicating (and absorbing) rich information requires physical proximity
or dedicated channels, whereas sharing information with a large audience
requires compromises in the quality of information. Therefore, the number
and quality of direct ties that KBs can develop in the physical world are
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Organization Studies 27(6)
limited by this reach versus richness trade-off. In virtual environments, VKBs
can overcome this trade-off and create direct ties with a large number of actors
without compromising on the richness of the ties. Third, positive network
externalities create further incentives to extend the number of direct ties
(Downes and Mui 1998). On the supply side, the incremental cost to reach a
new participant progressively tends to decrease, because of the predominance
of fixed cost compared to variable costs (Shapiro and Varian 1998). As a
result, VKBs have an incentive to attract new customer and, therefore, new
direct ties. On the other side of the network, consumers find more value in a
network as the number of users of the network increases (Gladwell 2000),
favoring the emergence of a virtuous cycle.2
While direct ties play a key role in determining the network access, indirect
ties are also useful, since firms learn not only from knowledge of their partners
but also from knowledge of their partners’ partners (Gulati and Gargiulo 1999;
Ahuja 2000). In this respect, the internet also serves as an important tool for
generating indirect ties. It is a low-cost open platform (e.g. Ruefli et al. 2001):
anyone anywhere can connect to it and contribute to the public discussion.
For this reason, it is much easier to access the knowledge of partners once
removed from direct partners (Afuha 2003), as well as a customer’s customer
knowledge. The internet positively impacts on the number of indirect ties that
VKBs can develop because it allows them to access electronic archives and
virtual communities of a partner’s partner, absorb this already codified and
digitized knowledge, and recombine it in new ways.
The network property of having ‘relationships free of structural holes at
their own end and rich in structural holes at the other end’ (Burt 1992: 45) —
called structural autonomy — helps the broker be the sole owner of the
innovation outcome to transfer to the innovating firm. This is a key property
of KBs, as shown in several cases of manufacturing industries (Hargadon
2003). By making it easier to sell the same information to many different
users who do not have any tie either among themselves or with the actors that
originated such information (Werbach 2000), the internet contributes to a
substantial structural autonomy of a VKB network of relations. Also, virtual
environments influence structural autonomy to the extent that they push
industries to become more global. Boundaries between industries tend to blur
on the web (Prahalad and Ramaswamy 2004), and at the same time, the
division of innovative labor tends to develop across geographies (Linder et
al. 2003). The joint effect is that it is much less likely that all the competences
needed to support innovation can be found within the same organization. As
a consequence, emerging structural holes across industries need to be filled.
The internet can be used to coordinate activities and information sharing
between otherwise disconnected pools of knowledge and competences on a
global basis and at a lower cost than in traditional, offline environments
(Afuah 2003; Porter 2001). In the convergent world of several industries, the
role of VKB in expanding structural autonomy becomes extremely relevant.
For instance, the internet community operator iVillage.com has created a
vibrant virtual community of women who share thoughts and preferences
online. Discussions about clothes, cosmetics, and automobiles are unrelated
Verona et al.: Innovation and Virtual Environments
773
to specific brands and can be repackaged by iVillage.com to make them useful
for innovation. In such cases, innovation is based on VKB leveraging
structural holes between different communities and specific companies, and
benefiting from its position to absorb and recombine broadly dispersed
customer knowledge and then redistribute it. This characteristic of the internet
suggests that actors can serve as VKBs quite effectively, by occupying central
positions within a network and dialoguing with a wide variety of players.
Finally, the use of virtual environments has also a significant impact on the
tie modality of the network. Tie modality is an important additional variable
to be considered when analyzing network access, because it affects the quality
of knowledge that may be absorbed and imported. While weak ties are
extremely helpful and economically efficient in searching for new knowledge
(Granovetter 1973), they are less efficient and effective at transferring
complex knowledge. Transfer of complex knowledge that is contextual and
interdependent requires strong (i.e. direct and frequent) ties, while weak ties
may be effective for less complex knowledge (Hansen 1999). Likewise, direct
ties allow complex and in-depth knowledge sharing, whereas indirect ties
seem to foster learning mainly from knowledge spillovers — i.e. information
(Ahuja 2000). The internet has a powerful effect in increasing the flexibility
of the network, allowing not only different partners to be involved at different
times, but also weak ties to be transformed into strong ties and vice versa,
depending on the complexity of the knowledge that needs to be transferred.
Real-time, two-way, and low-cost communication makes it easy to consolidate specific customer relationships on a contingent basis through ad-hoc
virtual communities and online conversations (e.g. Hoffman and Novak 1996;
Hagel and Singer 1999). As a consequence, VKBs can benefit from high
plasticity in the organization of their ties with different actors, on a very
dynamic basis and with low costs of conversion, once the platform of
interaction has been created (Prahalad and Krishnan 2002).
VKBs and Knowledge Absorption, Integration, and Implementation
When knowledge brokerage operates at the virtual level, four specific kinds
of internet-based tools may support knowledge absorption from individual
customers as well as communities of customers. First, the internet makes it
possible to directly acquire knowledge through observation of online consumer behavior. Marketers can track what customers do on their site (Burke
et al. 2001). Second, customers may be asked to play an active part in surveys
and opinion polls or online focus groups to obtain specific feedback. Third,
customer preferences for new product concepts can be measured through
web-based conjoint analysis tools (Dahan and Hauser 2002). The internet
also allows customers to self-configure and self-design products, bringing
customers directly into the design and development process (Thomke and
Von Hippel 2002). User-friendly toolkits for customer innovation may even
be purposefully assembled to leverage new technologies like computer
simulation (Von Hippel 2001). Successful applications might be found in
several industries, ranging from software to consumer goods (MacCormack
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Organization Studies 27(6)
et al. 2001; Thomke and von Hippel 2002). Finally, the internet allows for
extending knowledge absorption from individual customers to customers
within their own communities, leveraging the social knowledge that develops
through spontaneous conversations among them (Kozinets 1999). Groups of
customers can communicate to produce insights that might not have been
identified in any other way (Urban and Hauser 2002). More generally, customer
knowledge absorption through open source-based mechanisms has been
extended from the development of information products, such as software, to
a variety of industries where new products need to be developed on a continuous basis (Von Krogh and Von Hippel 2003).
Since, in virtual environments, any kind of interaction is mediated through
electronic interfaces (Hoffman and Novak 1996), virtual environments have
the capability of storing knowledge, enhancing not only absorption but also
knowledge integration. First, virtual environments empower formal mechanisms of knowledge sharing because information can be transmitted and
shared more broadly. Internet-based tools enable knowledge distribution at
the intra-company level, through intranet and groupware systems; at the intercompany level, through extranets and portals; and at the market level, through
the internet and public databases (Wayland and Cole 1997). Such formal
mechanisms facilitate systematic information access and increase the awareness about available knowledge, thereby making it easier to internalize and
recombine the assimilated knowledge. Second, virtual environments also
influence informal social integration, intensifying the relational dimension
of social interaction through extended connectivity (Kozinets 1999).
Many virtual communities on the internet are excellent examples of behavior
driven by social and community benefits rather than short-term economic
benefits (Rheingold 1993). Such a context provides good conditions to
support effective knowledge creation and exploitation through spontaneous
and collective participation. Hence, virtual ‘communities of practice’
(Brown and Duguid 1991) can be purposefully developed in order to favor
situated (Lave and Wenger 1991) and distributed learning (Sproull and
Kiesler 1991).
Virtual environments also influence the process of knowledge implementation. Any kind of knowledge shared on the web has to be codified in order
to be digitized (Afuah 2003). If this makes tacit knowledge more difficult to
exchange on the internet, it also facilitates knowledge memorization, retrieval,
and recombination (Fahey and Prusak 1998). Electronic archival and retrieval
facilitate the finding and recombining of modules of knowledge, making it
easier for VKBs to internalize and convert knowledge. Data can be received
on demand from a networked system, with no delay or zero latency (Ruefli
et al. 2001). By allowing low-cost, real-time access to broad knowledge,
virtual environments facilitate the process that combines apparently incongruous sets of information into a new schema that fosters entrepreneurial
action and innovation. At the same time, the internet can make information
available to more potential users, thereby increasing the likelihood of finding
other users for firms (Afuah 2003). The same piece of knowledge can be
leveraged more extensively; the absence of geographical barriers and the
Verona et al.: Innovation and Virtual Environments
775
opportunities of connectivity across industries enhance the possibilities for
knowledge exploitation. In virtual environments, it is possible not only to
identify and get in touch with more users interested in the same knowledge,
but also to allow them to identify themselves and directly cooperate in
developing a specific application of that kind of knowledge. In traditional
environments, KBs have to identify new potential users of their knowledge
and discover effective ways to reach them; in virtual environments, VKBs
can benefit from a reversed process, creating a public repository of their
knowledge and promoting contests to stimulate users to find the best applications for their ideas. Even more radically, VKBs can transform themselves
into marketplaces of ideas, where needs for new applications are directly
solicited by some users, and other users with specific knowledge can
spontaneously cooperate with the VKBs to identify the required applications,
as in the case of the internet-based operator InnoCentive (Sawhney et al.
2003). InnoCentive was created in 2001, by the pharmaceutical firm Eli Lilly,
to support innovation by facilitating direct dialogue between the company
and communities of scientists. Today it has evolved into an innovation
marketplace, acting as an independent third party to connect a broad range of
‘solution seeker’ companies with a vast base of potential problem solvers in
different industries, from pharmaceuticals, chemicals, and biotechnology to
agribusiness and consumer products.
The Role of VKBs in the Management of Innovation
Having understood how virtual environments amplify the traditional
competences of KBs, we now discuss their impact on the management of
innovation in contrast to traditional mechanisms. Figure 2 provides a description of our conceptual frame.
The goal of a firm that wants to innovate is to produce products and services
that are relevant to the market they serve. To achieve this, firms have always
sought to develop a market orientation (Kohli and Jaworski 1990), because
customer solicitations play a strategic role in creating better new products
faster. Firms seek to improve the fit between their offerings and customer
needs by surveying customers and importing customer understanding into the
firm (Von Hippel 1986) through their market-sensing ability (Day 1994).
Other ingredients of the innovation success include the firm’s effective R&D
and manufacturing routines (Hayes et al. 1988) and the right balance of
organizational competences (Verona 1999).
Since internal barriers to continuous innovation — referring to the people,
structures, managerial systems, and values that constitute the firm’s capabilities to develop and integrate knowledge — create inertia that prevents
adaptation of the innovation system (Leonard-Barton 1992; Tushman and
O’Really 1997), firms may outsource part of their creative activity to
knowledge brokers. These actors provide specific design solutions to firms
thanks to their inter-industrial and inter-organizational exposure (Hargadon
and Sutton 1997). Their special vantage point in the knowledge network helps
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Organization Studies 27(6)
C
C
C
KB
Continuous Direct
Community Interactions
Spot Design
Solution
VC
E
C
Continuous Direct
Individual Interactions
FIRM
C
Continuous Mediated
Community Interactions
C
VK
B
C
Continuous Mediated
Individual Interactions
C
Figure 2. Virtual Knowledge Brokers as a Complementary Source of Knowledge in Managing Innovation
them to bridge the differences between different worlds and enhance
creativity by connecting previously separated nodes.
While many of the innovation practices are still rooted in physical environments, the internet is emerging as an important channel to support a firm’s
innovative capacity. The creation of virtual customer environments helps the
firm building direct customer connections in the served market, increasing its
ability to manage the innovation process through the properties of the internet
(Nambisan 2002; Sawhney and Prandelli 2000). When a firm develops a virtual
customer environment, it has the chance to extend its interaction to a bidirectional mode and improve the richness of its content. The interaction evolves
from one-way knowledge import to interactive dialogue. This two-way
dialogue helps firms to progressively learn about each specific customer and
groups of customers and to refine the content of their innovation as the idea
turns into a product to be launched in the market. Firms can embrace a value
co-creation perspective in managing innovations with their customers (Prahalad
and Ramaswamy 2004). The richness of the interaction increases because
virtual communities of customers help firms to tap into social knowledge as
well as individual customer knowledge. Virtual communities permit the firm
to participate in the experiential and social contexts of customer consumption.
Verona et al.: Innovation and Virtual Environments
777
For this reason, firms in industrial markets (e.g. Microsoft, Sun Microsystems,
and Cisco) as well as consumer markets (e.g. Ducati, Hallmark, and Diesel)
are building virtual environments to support their innovation processes. For
instance, Sun Microsystems has developed an effective community to involve
both individuals and organizations in developing the Jini device-to-device
communication technology, giving them specific incentives, while Cisco
manages online customer forums to support collaborative advice for its
customer base. Likewise, the Italian motorcycle company Ducati realized that
its fans have deep technical knowledge and they love sharing experiences. To
support this interaction, the company has created Tech Café, a forum for
exchanging technical knowledge. In this virtual environment, fans can share
their projects for customizing motorcycles, suggest improvements for Ducati’s
next-generation products, and even post their own mechanical and technical
designs, with suggestions for innovations on aesthetic or performance grounds.
While virtual customer environments may be a tremendous source of
knowledge for innovation, direct customer engagement is not enough. Direct
engagement has, in fact, a limited network access, which may turn into a
weakness in the innovation process. Individual firms have limited reach in
terms of contexts in which they can dialogue with customers (Sawhney and
Prandelli 2000). Customer websites are primarily visited by firms’ customers
or prospective customers (Nambisan 2002), but not necessarily by the
innovative and knowledgeable customers that are invaluable for ideas.
Likewise, a firm website is rarely visited by competitors’ customers or by
non-adopters. For all of these reasons, VKBs provide an important service to
firms in overcoming the structural problem of limited reach between firms
and their potential customers, by creating single points of contact between
firms and millions of potential customers belonging to specific segments
(Burke et al. 2001). Thanks to their extended reach, VKBs allow firms
to overcome any possible myopia arising out of listening only to current
customers in limited contexts.
A further limitation that firms face is their inability to access social customer
knowledge. To the extent that consumption phenomena are increasingly
influenced by social contexts, knowledge development through peer-to-peer
customer interactions becomes critical in defining new product attributes and
uses. Customers influence each other considerably in their choice of new
products (Rogers 1995) and contribute to the development of collective meanings (Rheingold 1993). On the internet, the opportunity to tap into social
customer knowledge is greatly enhanced by virtual customer communities.
However, firms need specialized competences to select the right communities
to analyze, share their languages, and manage and opportunely synthesize the
huge amount of customer knowledge emerging through spontaneous interactions and online conversations. Hence, in contexts where social knowledge is
important for innovation, firms might find it difficult to collect this distributed
knowledge on their own, and therefore may benefit from working with independent actors who can enrich their understanding of customer needs. For
example, the casual wear company Diesel uses third-party websites and communities to obtain crucial social customer knowledge (Verona and Prandelli 2002).
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Organization Studies 27(6)
VKBs also help firms to overcome perceptions of bias that firms may face
in soliciting customer input for innovation. Customers often perceive firms as
having vested interests, and therefore may be reluctant to share information
openly with them. Customers are much more likely to trust an unbiased third
party whose sole purpose is to help them by understanding their preferences
concerning products, brands, and manufacturers (Hagel and Rayport 1997).
This is why customers rarely tend to speak about their lifestyle and interests
on company websites, preferring independent communities where they feel
their knowledge will not be exploited for commercial purposes (Sherry and
Kozinets 2001). Customers are also biased by their past experience with a firm,
and may not be able to think differently about the firm and its products. Rogers
(1995) illustrates the role of incompatibility with existing products and
behaviors as an important barrier to adoption. Customers are not even always
completely aware of their own specific needs and specific solutions that might
address their needs. Therefore, they tend to consult autonomous and unbiased
third parties earlier in the decision process, before they engage with specific
firms and products (Maes 1999). Firms are also informed by their prior
experience, which limits their ability to absorb customer knowledge that may
not fit in with their own ideas (Christensen 1997). Therefore, firms that limit
their collaboration to existing customers tend to self-confirm their own mental
models and so risk creating innovation that is not relevant for the market at
large, and too incremental to sustain competitive advantage (Christensen and
Bower 1996). To gain insights that facilitate innovations, firms need to
complement the knowledge that they can get from current customers with other
knowledge from potential customers that the firm may not normally deal with,
knows little about, and cannot reach in a credible manner.
The role of VKBs in the management of innovation is also different from
that of traditional KBs. The latter specifically offer new solutions to design
problems to firms and therefore contribute primarily to their inventive activity.
Clients, typically, hire a KB to design part or all of a product that they would
like to manufacture and sell but lack the expertise or staff levels to design it.
Results range from sketches of product concepts to complete new product
design, and the collaboration between the KB and its client tends to last,
depending on the specific design project, from a few weeks to three years,
with an average of about one year (Hargadon and Sutton 1997). KBs innovate
by combining in new ways existing technologies that originated in various
industries (Hargadon 1998). Hence, they absorb knowledge from other
companies. Innovative firms located in different industries are often the source
of their ideas, and the main skill of KBs involves finding opportunities by
arbitraging knowledge across industry contexts. This recombination and
arbitrage allows KBs to serve as a valuable clearinghouse for technological
solutions (Hargadon and Sutton 1997).
VKBs differ from KBs in several key respects. First, they do not offer
completely developed design solutions, but provide a service that extends to
the entire scope of the innovation activity. Second, they do not leverage solutions and technologies already developed within other companies, but absorb
new ideas and knowledge from customers. This requires the creation and
ongoing management of two-way interactions with individual customers and
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Verona et al.: Innovation and Virtual Environments
virtual communities on a systematic basis. Third, as a consequence, the collaboration between VKBs and firms who work with them is often not limited to
an individual project, but can expand over time to support different knowledge
needs on an as-needed basis. Clients, typically, hire a VKB to gather market
knowledge that will enhance their ability to generate and select new ideas
— stimuli to incremental or even radical innovation — or enhance their
their ability to develop, test, and refine new products. Hence, by managing
knowledge of distant customers, VKBs may be useful at the front-end as well
the back-end stages of the innovation management process. So, while KBs
tend to have a strong client orientation to serve the needs of a firm looking for
a specific design solution, VKBs tend to favor a network orientation, providing
knowledge absorbed from customers to different companies, repackaged in
different ways, to support different stages of the innovation process.
It is also important to highlight the limitations of VKBs. The processes of
absorption and usage, and hence transfer between a firm and a VKB, are all
influenced by the nature of knowledge and, specifically, by the level of
knowledge codification. When knowledge is codified, it can also be replicated
(Szulanski 1996).3 Virtual environments do not allow all types of knowledge
to be exchanged. Tacit knowledge is more difficult to exchange over the
internet than explicit knowledge (Afuha 2003). This does not mean that, on
the internet, tacit knowledge is not present, since in a virtual community
people may exchange ideas and feelings, and also solve problems. It simply
means that the lack of codification may limit the ability of a VKB to capture
tacit knowledge. Other things being equal, the ability of a VKB to contribute
to a firm’s innovative activity will be moderated by the level of codification
of the knowledge to be absorbed. This is exactly the opposite in the case of
a traditional KB. The fact that KBs are rooted in physical contexts reduces
their ability in network access, but increases their ability to absorb, integrate,
and implement knowledge. The fact also that they work in close proximity
to their customers helps them deliver customized solutions. Table 2 summarizes the main differences between VKBs and other channels for supporting
innovation.
Table 2. A Comparison between Mechanisms for Supporting a Firm’s Innovation Process
VKB
KB
VCE
Type of contact
Mediated
Mediated
Direct
Source of knowledge
Industrial and inter-industrial
Inter-industrial
Industrial
Type of outcome
Knowledge for innovation
Product design
Knowledge for innovation
Role in the process
Invention and innovation
Invention
Invention and innovation
Type of orientation
Network orientation
Client orientation
Firm orientation
Type of interaction
Continuous
Spot
Continuous
Core competence in the
brokering cycle
Network access
Absorption and
integration
Absorption and
implementation
Main limit
Knowledge implementation
Network access
Network access
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Organization Studies 27(6)
Discussion and Conclusion
To maintain the pace of innovation in today’s rapidly evolving markets, firms
need to extend their ability to absorb customer knowledge that lies beyond
their reach and influence. Towards this end, the internet and communications
technologies have greatly enhanced the connectivity between firms and customers by enabling the creation of virtual customer environments. Developing
and managing these kinds of virtual relationships requires specialized
competences that firms may lack. This gap in capabilities motivated our
conceptual framework that suggests the need for VKBs to facilitate innovation
by enhancing the reach and richness of interactions between firms and their
customers in virtual environments. We grounded our framework in the
existing literature on KBs, which helps us to understand how firms can better
manage the division of innovative labor within a network of specialized
entities that support innovation.
Our conceptual framework contributes to a better understanding of the
process of innovation by showing how different actors can play specialized
roles in producing innovation-related knowledge, and how firms may need
to collaborate with third-party KBs to absorb such knowledge. From a
theoretical standpoint, we believe that we are contributing to a better understanding of the process of knowledge brokering, continuous innovation, and
the firm–customer relationship in several ways. First, our model extends the
insights on KBs to the emerging context of virtual environments. It highlights
that the process of knowledge brokerage can play a major role in virtual
environments by amplifying the network accessed by any firm that needs
market knowledge for innovation. Also, by providing customer knowledge
to support the entire innovation process, we go beyond the traditional role of
KBs, which is generally limited to design solutions for new products. Second,
our research contributes to the larger body of literature on continuous
innovation, which has traditionally adopted an endogenous perspective and
has centered mainly on a firm’s dynamic capabilities (e.g. Teece et al. 1997).
We highlight the fact that processes that support dynamic capabilities often
take place at the inter-organizational level. Independent KBs play a key role
by enabling combination and reconfiguration of knowledge to support innovation. Towards this end, VKBs can help overcome core rigidities (LeonardBarton 1992) and improve strategic patching (Brown and Eisenhardt 1997),
thanks to the continuous contribution of new pieces of knowledge from
external sources that can be creatively combined. Third, our model highlights
the fundamental role of customer knowledge in the process of product
development. While the role of the internet in supporting customer knowledge
absorption has been widely explored (e.g. Hagel and Singer 1999; Sawhney
and Prandelli 2000), key questions still remain on how to leverage this
knowledge capital in practice. We show that customer knowledge, by virtue
of its being difficult to grasp, is best gathered and disseminated by specialized
operators who work to facilitate innovation. Our framework sheds light on
how new mediators specialized in customer knowledge absorption can
support the firm’s innovation processes by leveraging virtual environments in
Verona et al.: Innovation and Virtual Environments
781
a way that stretches the opportunities available for the individual firm both
in time and space.
Our model also presents important managerial implications. The concept
of VKB is extremely useful for firms that need to develop new products with
continuity. Despite the internet promise of being a truly global medium, a
single firm can rarely interact with prospects, competitors’ customers, and
non-adopters in nascent markets. Any company presents several structural
holes that limit the scope of its interactions and relations. These structural
holes become especially problematic in the process of innovation, because
innovation rarely comes from existing perspectives and traditional interactions between firms and customers. Therefore, the indirect connections that
VKBs offer are extremely useful for enhancing the innovation capacity of
firms. Moreover, it is important to note that firms are limited in their ability
to reach customers when and how they need to. VKBs can span structural
holes across space (by engaging different types of customers and prospects)
as well as time (by spanning all stages of the customers’ decision-making
process). In so doing, they greatly extend the reach and enhance the richness
of customer collaboration in innovation.
The concept of VKB is also useful for internet operators that are looking
for new avenues for value creation after the bubble that hit the global medium.
The nodal position they occupy between the demand and supply sides puts
them in a good position to aggregate customer preferences, solicit customer
feedback, and gather knowledge that emerges from spontaneous conversation
among customers and may be useful for a company innovation process. In this
sense, the emergence of VKBs parallels the birth and development of
information intermediaries. Infomediaries gather and organize information on
products and services for individuals who are considering a purchase; they
also organize communities of customers on the basis of common interests or
specific industries. They use content and community to facilitate transactions
in a way that complements a company’s direct e-commerce channel. In
contrast to direct connections, they help firms reach a wider customer base,
and are trusted by customers because of their perceived neutrality. As an
interesting parallel, VKBs concentrate on aggregating and disseminating
customer knowledge to support innovation. This suggests that infomediaries
can evolve into VKBs because customer knowledge is a by-product of
connecting actors on the supply and demand sides of transactions. By packaging customer knowledge in ways that are useful for companies to improve their
innovation process, an information broker can also play the role of a VKB.
The ideas that we propose need to be refined in further conceptual and
empirical research. We propose at least four important directions for future
research. First, quantitative analysis is needed in order to measure the specific
impact of the VKB phenomenon on the innovation process. This can be done
by developing specific propositions regarding the impact of VKBs on
innovation. Past theoretical and empirical literature on product development
has identified time to market and the fit with the market needs as the two most
important metrics of the innovation process (Brown and Eisenhardt 1995;
Verona 1999; Krishnan and Ulrich 2001). Specific propositions relating the
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Organization Studies 27(6)
contribution of VKBs to these two variables would be extremely relevant. In
this respect, it would be important to compare the efficiency and effectiveness
of the innovation process at firms that use VKBs and at firms that do not
collaborate with VKBs.
Second, it will be important to monitor the process of knowledge transfer
between a VKB and a firm that wants to innovate. While the network access
capability of a VKB is indisputable, it is also important to understand the
factors supporting knowledge transfer between the VKB and the innovating
firm.4 Several organizational variables might act as integrators of knowledge
between two actors. As also indicated by Zahra and George (2002), the
relationship between a potential absorptive capacity and its actual realization
is moderated by social integration mechanisms, whose presence lowers
barriers to information sharing while increasing the efficiency of knowledge
assimilation and transformation. Knowledge is often social in nature (e.g.
Polanyi 1966; Kogut and Zander 1992), so spot and contractual agreements
are not conducive to the effective incorporation of knowledge absorbed by a
VKB into the innovation process. Integration mechanisms (both formal and
informal) make all contributors to innovation more aware of the potential
knowledge that is workable for innovation.
Third, it would be useful to understand how different types of VKBs can
provide knowledge that supports different stages of the firm’s innovation
process. It would be helpful to develop a taxonomy of VKBs that recognizes
the fact that VKBs can specialize along two key dimensions: the type of
knowledge they create and the stages of the innovation process that they focus
on. Assuming that the innovation process is divided into several steps — from
concept development to product launch — there are several informational
needs that must be fulfilled in order to develop new products. A further
qualitative analysis may contribute to a better understanding of how VKBs
can help the individual firm at each of these stages: by observing customer
conversations and behavioral paths to support ideation; by directly asking
customers about their perceptions; by presenting customers with prototypes
of new offerings and product concepts; and by describing customer profiles
and responses to new products. A likely finding might be that firms cannot
rely on a single VKB for all stages and for all types of knowledge. Rather,
they need to rely on a portfolio of VKBs that together have the capacity to
bridge all structural gaps between them and relevant customers.
Fourth, the similarity between a KB and a VKB requires closer attention.
A VKB stems from an infomediary, which means that, first of all, it shows
strong ability in managing virtual environments. In this sense, the two operators are substantially different. Also, as indicated in Figure 1, KBs so far have
mainly been design and consulting firms like IDEO, Accenture, and Design
Continuum. These companies are good at consulting in physical environments
but not necessarily at bridging and absorbing knowledge in virtual environments. In fact, the cases of VKBs such as Edmunds, Liquid Generation, and
Innocentive show idiosyncratic web-based abilities. Specifically, VKBs need
to develop robust competences in carefully tracking and profiling customers;
managing two-way communication channels to create emerging individual
Verona et al.: Innovation and Virtual Environments
783
customer knowledge; moderating virtual communities to create emerging
social customer knowledge; creating incentives to enact mechanisms of selfselection from the most involved customers; deploying content analysis to map
and subsequently recombine relevant pieces of customer knowledge. These
web-specific competencies are difficult for KBs to develop, if they lack the
ability to manage virtual relationships with a broad customer base. Future
research could explore this area further.
In conclusion, in a world that is becoming increasingly connected, we hope
that future research will follow our general guidelines to demonstrate the
concrete benefits of knowledge brokering in virtual environments.
Notes
The authors acknowledge insightful conversation on the topic of this paper with Paola Cillo,
Anna Grandori, and Salvio Vicari. They are also indebted for the detailed comments made by
Paul Robertson and Daniele Severi Bruni. Earlier versions of the paper also benefited from
the presentations at the 2002 EURAM Conference, Milan; the 2003 AOM Conference, Seattle;
the 2003 SMS Conference, Baltimore; and the 2004 Strategy Seminars at the University of
Innsbruck. The authors assume full responsibility for the ideas contained in the paper. The
support of Bocconi University with funds from the Ricerca di Base ‘The impact of information
and communication technology on the new product development process’ is gratefully
acknowledged.
1
2
3
4
References
We emphasize this point, because historically literature on innovation has been primarily
focused on the role of technological knowledge. Only recently, scholars have started to
stress the fundamental role of organizational and customer knowledge (e.g. Christensen
1997; Adner 2002). Moving from ‘technology brokerage’ to the more general process of
‘knowledge brokerage’ is an important generalization of the brokerage concept.
According to Metcalfe’s law, the value of a network increases in proportion to the square
of the number of people using it (e.g. Downes and Mui 1998). So the first player to achieve
a critical mass of customers can potentially achieve dominance. As a consequence, when
a VKB has reached the critical mass of direct ties, these ties tend to increase further in
a virtuous cycle. This virtual cycle can extend far further in a virtual network than in a
physical network (McAfee and Oliveau 2002).
Tacit knowledge does not necessarily mean that it is knowledge that cannot be codified.
Individuals and firms can undertake processes of socialization and externalization that
may help to codify tacit knowledge (Nonaka and Takeuchi 1995). Still, some knowledge
is unlikely ever to be explicated because it may be embedded in individual or organization
cognition and abilities (Leonard and Swap 1999). In this sense, the quantity and quality
that may be transmitted depends very much on the level of knowledge codification: codes
help transmission, and with low codifiability knowledge transfer is weak.
We are indebted to one of the reviewers for suggesting this limitation.
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Gianmario Verona is an Associate Professor of Management at Bocconi University,
Associate Director of the PhD in Business Administration and Management, and
Senior Lecturer at SDA Bocconi School of Management. He was a Research Assistant
at the Massachusetts Institute of Technology 1997–1998. He was also Visiting
Professor at the Leopold Centre of Strategy and Leadership at Innsbruck University
2004–2005. His research interests include the study of dynamic capabilities, the
organization design of the new product development process, and the impact of
information and communication technology on the innovation process. He has
published in leading journals including Academy of Management Review, Industrial
and Corporate Change, and MIT Sloan Management Review.
Address: SDA Bocconi School of Management at Bocconi University, via Bocconi
8, 20136 Milan, Italy.
Email: [email protected]
788
Organization Studies 27(6)
Emanuela
Prandelli
Emanuela Prandelli is an Associate Professor of Management at Bocconi University
and Senior Lecturer at SDA Bocconi School of Management. She served as a Research
Assistant at St Gallen University, Switzerland, in 1998, and in 1999 at the Kellogg
School of Management, Northwestern University, Evanston, IL, where she also was
Visiting Professor in 2001. Her research focuses on collaborative marketing, virtual
communities of consumption, the study of e-business, and the process of innovation.
She has published in leading international journals, such as California Management
Review, MIT Sloan Management Review, and European Management Journal. In 2001
(with Mohanbir Sawhney) she won the Accenture Award for the best paper published
in California Management Review in 2000.
Address: SDA Bocconi School of Management at Bocconi University, via Bocconi
8, 20136 Milan, Italy.
Email: [email protected]
Mohanbir
Sawhney
Mohanbir Sawhney is the McCormick Tribune Professor of Technology, Director of
the Center for Research in Technology and Innovation and the Chairman of the
Technology Industry Management Program at the Kellogg School of Management,
Northwestern University. His research and teaching interests include collaborative
marketing with customers, IT and business value, technology-enabled business
transformation, and business innovation in large companies. His research has been
published in leading journals including Harvard Business Review, Management
Science, Marketing Science, and MIT Sloan Management Review. He has won several
awards for his research, including (with Emanuela Prandelli) the 2001 Accenture
Award for the best paper published in California Management Review in 2000.
Address: Kellogg School of Management, Northwestern University, 2001 Sheridan
Road, Evanston, IL, USA.
Email: [email protected]